Do I need to take advantage of RBI 3 month moratorium on loan EMI?

RBI has taken a few steps in its recent meeting to improve the Indian economy that has impacted due to the Covid-19 crisis. Among the various measures announced, 3 months moratorium on loan EMIs is a BIG step that would help many individuals who might not be able to pay Loan EMIs due to Indian economy lockdown. In this article, we would provide some of the frequently asked questions about RBI 3 month moratorium and indicate whether one need to take advantage of such deferment of loan EMIs.

India is under lockdown due to corona virus situation. Many of us might not be able to pay our outstanding loan EMIs for next few months. Considering this crisis, RBI has proposed that banks and financial institutions can provide 3 months moratorium on loan EMIs. In simple terms, this is like deferment of EMI payments where you need not pay your monthly installments for next 3 months.

What loans are covered for RBI 3 month moratorium on Loan EMIs?

RBI indicated that term loans which include personal loans, home loans, auto loans (Car loans, two wheeler loans, etc.), education loans and loans taken for purchasing consumer durables like ACs, fridge, mobile phones will be covered under this 3 month moratorium.

Frequently Asked Questions (FAQs)

Now let us look at some of the frequently asked questions on this loan EMI deferment.

1) Which bank and financial institution is eligible to provide this 3 months relief?

RBI indicated that all commercial banks, which includes regional rural banks, small finance banks, co-operative banks and all NBFCs which includes housing finance companies and micro finance enterprises can provide this relief to their customers.

2) What loans are eligible for this 3 month deferment of loan EMIs?

Specified loans that are taken on or prior to 1st March, 2020 are eligible for this deferment for the period of 3 months.

3) How do I know whether I am eligible for 3 month loan deferment?

RBI proposed this relief, however it is at the discretion of the bank or financial institution to provide a moratorium to its customers. They need to first discuss internally within the board of such bank or institution and then would be communicated to you. You need to wait for the communication from the bank.

4) If my bank provides 3 months relief, am I automatically covered?

No. You are not automatically covered. First bank would discuss internally. Second, they would communicate to you if you are eligible for such relief. Third, you need to accept if you want this 3 month moratorium. Fourth they would confirm once they accept your proposal.

5) If I opt for a 3 month moratorium, would it affect my Cibil Score?

No. RBI indicated clearly that due to this deferment, no credit score would get affected.

6) Is this 3 month deferment applies to credit card payments too?

Yes. Though initially there is no clarity, RBI has clarified. This 3 month deferment is also applicable for credit card payments too. Means you need not pay credit card dues for next 3 months provided your bank provides such relief and you accept such relief.

7) Would there be any interest charged for this 3 month period?

If you are opting for 3 months loan EMI deferment, your bank or financial institution WOULD charge interest for this 3 month period on the outstanding loan amount.

8) Would there be interest if I use this relief on credit card outstanding?

Yes, your bank would charge interest for this 3 month period at applicable rates.

9) What happens after this 3 month moratorium period?

Principal+interest whatever is due for this 3 month period needs to be paid immediately after this 3 months moratorium period.

10) Is there 3 months relief for business loans?

Businesses would have taken working capital loans for their day to day running the operations. They can defer the payment of interest on such loans for this 3 month period, which applies to all loans outstanding as on 1st March, 2020. This would not bring down the asset classification downgrade.

Here are few ways to handle this situation. One should note that you should be able to view this not just 3 months, but at least between 3 months to 6 months crisis.

i) If you are salaried employee or the businessman and you are still able to get fixed / regular income, then pay your EMIs in a regular way.

ii) Can you pay your EMI’s with your emergency money or investments without disrupting your existing expenses, then go head pay your EMIs in the normal way.

iii) If you feel that your income is going to be disrupted due to corona virus situation for next 3 months, you should opt for this 3 month moratorium.

iv) If you get an indication that you would lose a job or sense layoffs, opting for this 3 month moratorium can benefit you so that you can join another job or find alternative ways of paying off such dues. However, you need to pay interest + entire loan EMIs after 3 months period.

v) While home loan EMIs can be deferred, personal loans or credit card payment deferment should be avoided. Interest on credit card outstanding or on personal loans are generally very high compared home loan. Hence, after this 3 month moratorium, you would see huge interest to be paid on such loans. Check if you can avoid them.

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I have done my Post Graduation in Finance. I have over 20 years of experience in analyzing various investment options and money saving ideas. I love doing financial planning, Mutual Fund Analysis, Searching long term Stocks for wealth creation, IPO Reviews, Analyzing Life Insurance and Health insurance Plans etc.